Last Updated on November 21, 2023
It’s common for business owners to feel fatigued from dealing with the hefty amount of paperwork that comes with running a business. The stereotype that every lending option comes with seemingly endless forms to fill out and documents to provide can even disenchant borrowers from seeking out certain financing options entirely. Fortunately, a few lending options require little paperwork during the application process. These are referred to as “no-doc business loans.”
You may have heard of no-doc business loans before, but you might not be aware of the various loan options that are considered “no-doc”. Plus, how do you obtain a no-doc business loan?
Continue reading for a breakdown of these loans, along with how and where to get them.
What Is a No-Doc Business Loan?
A no-doc business loan, commonly referred to as alternative financing, is any business loan that requires minimal to zero documents to be handed over by the borrower when applying. Here, there’s an emphasis on the “minimal,” as no-doc business loans include loans that do have some required paperwork but not nearly as much as traditional bank loans. Business owners will still have to submit basic information about their companies during the application process (ie. revenue, assets, and the age and size of the business).
While nearly every lending option is going to require at least some documents to be submitted, no-doc business loans are sought out by business owners who want or require as simplified an application process as possible. The trade-off? These loans almost always have higher-than-standard rates and fees since the lender is taking on more risk, so loan terms for small businesses might look a little different.
No-Doc Business Loan Advantages and Disadvantages
Whether you’re choosing between a traditional bank loan or an alternative lending option, you should weigh the pros and cons of each before making a decision. Below are some advantages and disadvantages that come with no-doc business loans.
An uncomplicated application process. The most obvious benefit of a no-doc business loan is that the simplified application process makes it easy for business owners, particularly small business owners juggling multiple responsibilities, to apply for these loans without having to devote much time to gathering, signing, and submitting paperwork.
Flexible qualification requirements. Have subpar credit or a lack of business credit history? No-doc business loans are a fantastic option for business owners with bad credit or those who can’t qualify for a traditional bank loan for whatever reason. This is why these no-documentation loans are commonly utilized by small business owners and startup owners.
Fast access to capital. A general benefit of non-traditional financing is that, typically, you’ll receive your cash advance quicker than with traditional bank loans. If you need short-term funds to cover an existing project or to make payroll, most no-doc business loans can help you out.
Higher interest rates (typically). You can expect fees and rates to be a bit higher with most no-doc business loans. Sometimes, the uptick in fees and interest rates is warranted, though, and might prove worth it depending on the borrowing business’s existing capital needs. Make sure you do your homework so that you find the right loan for your business (which we’ll touch on more later).
Quick repayment obligations. With fast access to capital come faster repayment terms compared to many standard bank or SBA loans. These payment terms vary by loan type, though. For example, you may find that a business line of credit or invoice factoring has more reasonable repayment terms than a merchant cash advance.
Predatory, non-transparent lenders. Alternative financing comes with several advantages that most bank loans don’t provide, but it’s crucial to find a trusted lender. For example, independent companies or individual investors are, by some, considered not as reliable as a bank, so if you do decide to work with a lender that isn’t a federally regulated bank, you absolutely must be as thorough as possible in your inspection of financers to avoid being taken advantage of in relation to interest rates, fees, and other contractual details.
Business Loans With No (or Minimal) Documents
Regardless of the specifics of your business (age, size, credit history), there’s a high chance you will qualify for at least one type of no-doc business loan. Below are some of the more popular options.
|Type of Loan
|Invoice factoring (though not technically a ‘loan’)
|Business line of credit
|Unsecured short-term business loan
|Merchant cash advance
|Automated Clearing House (ACH) Loan
Invoice factoring is a great option for businesses with frustratingly time-consuming accounts receivable, or AR, that’s hindered by slow-paying customers.
By definition, factoring is not a no-doc business loan because it is not technically a “loan”, yet it shares similarities with most other no-doc loans, so it is often included as a no-doc funding option.
With this type of alternative financing, businesses sell their invoices to a third-party factoring company. The factor then provides a cash advance of up to 90% of the value of the invoice. Once the business’s customer submits payment (to the factoring company), the factor releases the remaining value of the invoice to the business, minus a small factoring fee.
Factoring does not require a credit history or a minimal credit score; rather, the factoring company will look at your customers’ credit histories. This process can give you and your business an immediate working capital boost and accelerate cash flow.
Invoice financing, sometimes called AR financing, is extremely similar to invoice factoring, following the same general step-by-step process listed above.
However, with AR financing, the invoice is used as collateral. This process ultimately operates similarly to asset-based lending with traditional interest rates. Regardless of these slight differences, invoice financing remains a great option for business owners looking to improve working capital.
Business Line Of Credit
A business line of credit is a common no-doc business loan that is used a lot like a credit card. You’re provided a credit limit, or a set amount of money to borrow, which you can draw from as needed. This credit limit is mostly determined based on your business credit score, history, and the type of lender you’re borrowing from. These lines of credit are also capped and typically smaller than traditional loans.
This is a popular option because it’s considered unsecured debt, meaning no collateral is required, which is particularly helpful for new business owners who might not have anything substantial in the way of business assets.
A business line of credit allows you to pay off short-term expenses for ongoing costs, but if you’re looking to make an expensive one-time purchase, you should probably look at a more traditional loan if you can qualify. As with most no-doc business loans, downsides include higher-than-usual rates and fees, short repayment terms, and limited funds to pull from.
Unsecured Short-Term Business Loan
Unsecured short-term business loans are defined as any loan that does not require collateral, such as a business credit card or term loans.
Many unsecured short-term business loans are also considered no-doc business loans, and most also require a minimal credit score to qualify. High interest rates on these loans can scare off potential borrowers, but if you’re a startup owner or small business owner, you may not qualify regardless, as you might not meet minimum credit requirements.
Since these loans are not backed by collateral, you don’t need to worry about a bank seizing assets if you are unable to meet repayment terms. However, by not following the repayment terms, your credit score would be affected, and if the financial institution requires you to sign a personal guarantee, that means they could seize your personal assets.
Merchant Cash Advance
A merchant cash advance (MCA) is an advance that is borrowed against future credit card purchases and is usually repaid within 6 to 12 months. This no-doc business loan can be one of the most costly forms of financing, which is why MCAs are often viewed as a last resort for business owners who can’t qualify for traditional lending options. The short-term benefits are clear: immediate access to cash with simple repayment terms. Plus, businesses with poor credit can still expect to qualify.
The risk is just as evident, though. The APR (annual percentage rate) for MCAs is sky-high, sometimes up to 200%, and borrowers are required to make frequent payments. If your business is suffering from a period of negative cash flow, these payments can prove challenging, often leading to business owners trying to figure out how to get out of a merchant cash advance.
An automated clearing house (ACH) loan operates very similarly to an MCA. They are just as easy to qualify for and have simple repayment structures. However, rather than repaying the loan based on a percentage of daily credit and debit card sales, an ACH loan is typically repaid based on a set amount that is automatically withdrawn from a business bank account on a daily or weekly basis.
Similar to a merchant cash advance, ACH loans can be costly due to the high APRs that are tied to them. It may be tempting to apply for this type of no-doc business loan, but be sure to do thorough research prior to signing a contract, as this funding option is often detrimental to business owners.
What Banks Offer No-Doc Business Loans?
If you’re seeking one of these loans, you may have to broaden your horizons and look into smaller banks, online lenders, or banks that specialize in a certain type of funding.
For example, altLINE is the invoice factoring branch of The Southern Bank Company. You may not qualify for a business line of credit at one bank, but you may qualify for invoice factoring with altLINE.
Be aware that invoice factoring and other types of alternative financing are offered not only by federally regulated banks but by independent companies as well. Keep in mind that independent companies are not held to the same level of regulation as banks, which could lead to less transparency in the financial partnership.
Related: Why Factoring with a Bank Is Better
How Do I Get a No-Doc Business Loan?
To get a no-doc business loan, you’ll need to first know how much funding you need, how quickly you need it, and why you need it. Lenders will always ask for this information, regardless of the type of loan.
Furthermore, be able to answer the basic questions about you and your business, including:
- Business credit score
- Personal credit score
- Size of your business
- Age of your business
- Annual revenue
By answering these questions, you’ll have a better understanding of which no-doc business loans your business is more likely to qualify for and which may not be worth your time.
Then, it’s time to research further by exploring alternative financing options and lenders in more detail. Repayment terms, funding timelines, rates and fees, customer service, and application processes are all factors you should weigh when trying to get your no-doc business loan. Don’t forget to ensure they’re reputable as well by reading reviews online or client testimonials.
Once you’ve narrowed down your options and lenders, it’s time to get on the phone. Get a feel for their customer service, customer support, and professionalism. Finally, once you’ve selected a lender, you can begin the application process!
Choosing the Right Loan for Your Business
Choosing the right loan type for your business, along with the right lender or bank, is one of the most important decisions you’ll make as a business owner. After all, you’ll be relying on an outside institution to help support your business financing and keep your company heading in the right direction.
You’re taking the right steps by reading this article, but your research shouldn’t end here. Look into lenders’ reputations on business review sites such as TrustPilot, consult with friends in your industry regarding the loan you plan to utilize, and be open and honest when communicating with financing companies.
If invoice factoring or invoice financing is the no-doc business loan of your choice, fill out our free factoring quote form or give us a call today at +1 (205) 607-0811. Our representatives would be happy to discuss how altLINE can help improve your cash flow.
No-Doc Business Loan FAQs
What are unsecured no-doc business loans?
Unsecured no-doc business loans are a branch of no-document business loans that not only require minimal to no documentation during the application process but also do not have to be backed by collateral. An example of an unsecured no-doc business loan is a business credit card. However, sometimes business owners or borrowers are required to sign a personal guarantee, meaning that, while they do not have to put any business-related assets up as collateral, they have to include personal assets as collateral.
How do I get a no-doc business loan for my startup?
To get a no-doc business loan for your startup, you should first do your research on what type of loan works best for your startup. You’ll find that your startup likely won’t qualify for some no-documentation business loans due to credit requirements, while others, such as SBA loans and online lender loans, are within reach. Once you’ve chosen the right financing method for your business, you should then research respected lenders that offer that type of loan before having a conversation with a representative from said financial institution to determine if they’re the right match for your business.
Can I get a no-doc business loan with bad credit?
Yes, there are ways to get no-doc business loans with bad credit, but you should expect them to come with their own trade-offs. This is because financial institutions want to ensure they’re working with reliable businesses when it comes to paying back loans, but if you have bad credit, they have to minimize the risk for themselves. To do this, they will sometimes request a personal guarantee, require you to get trade credit insurance, or charge higher fees.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.